Wealth in the US: Sizing the Market Opportunity 2017

Table of Contents

1. EXECUTIVE SUMMARY 2

1.1. Key findings 2

1.2. Critical success factors 2

2. SIZING AND FORECASTING THE US WEALTH MARKET 8

2.1. Affluent individuals in the US account for more than two thirds of the adult population 8

2.1.1. Regional strategies are critical to effectively competing in such a large and diverse market 8

2.1.2. HNW investors account for

1.8% of the market, and the very rich will get richer 9

2.2. Overall growth of total liquid assets has been highly variable in recent years 10

2.2.1. Wealth held by affluent investors has risen robustly, providing wealth managers with ample opportunities 10

2.2.2. US HNW individuals hold over a third of total liquid assets – a share that will rise 10

3. DRIVERS OF GROWTH IN THE US WEALTH MARKET 12

3.1. 2016 saw moderate growth, and the four-year outlook is one of cautious optimism 12

3.1.1. A late cycle economic bounce will result in continued expansion of retail wealth 12

3.1.2. The US market is heavily weighted towards equity and mutual funds 13

3.1.3. Bonds will rally slightly in 2017, but the market will remain weighted to mutual funds and equities 15

3.2. Deposits will see slightly slower but steadier growth, supported by benign inflation and higher interest rates 16

3.2.1. A moderate rise in inflation and small interest rate hikes will have little effect on the deposit market 17

3.2.2. GDP growth is also unlikely to strongly affect deposit allocations, especially if there is no real wage upturn to kickstart consumer spending 17

3.2.3. The closure of the FDIC Transaction Account Guarantee program has diminished the attractiveness of deposits 17

3.3. Bonds, equities, and mutual funds are more closely aligned with the fortunes of the stock market 18

3.3.1. The US stock market recovered in 2016 after stagnating in 2015 18

3.3.2. Retail bonds are to maintain moderate growth over the forecast period as the effects of QE and the zero interest rate policy diminish 20

3.3.3. Bonds may lose their ultra-safe image as the effects of QE fall out of the US bond market 20

3.3.4. The performance of the stock market also has a direct impact on equities and mutual funds 21

3.3.5. Mutual funds in the US have become heavily weighted towards equities 23

3.3.6. The US ETF industry will only continue to grow and evolve to meet the needs of retail investors 24

4. HNW INVESTMENT PREFERENCES 26

4.1. HNW individuals allocate 14% of their investible assets outside of traditional investments 26

4.1.1. Private equity funds, commodity funds, and direct property investments are the most popular HNW illiquid assets 26

4.1.2. Private equity rides high and will continue to expand in 2017 26

4.2. HNW individuals hold

12.8% of their assets offshore 27

4.2.1. US HNW investors have usually had among the lowest proportion of assets offshore 27

4.2.2. Achieving truly global portfolio exposure is the main offshore driver 28

4.2.3. Personal tax rates are high but are a diminishing driver for offshore investment 29

4.2.4. Trump’s proposed tax cuts are likely to further eliminate tax efficiency as a driver of offshoring 30

4.2.5. The UK, Canada, and China are now the most popular booking centers for US HNW individuals 31

4.2.6. FATCA IGAs have been signed with a significant number of countries 32

4.2.7. Amnesties have been set up to encourage wealth onshore 33

5. APPENDIX 35

5.1. Abbreviations and acronyms 35

5.2. Supplementary data 36

5.3. Definitions 39

5.3.1. Affluent 39

5.3.2. Bonds 40

5.3.3. Cash 40

5.3.4. Deposits 40

5.3.5. Domicile 40

5.3.6. Double taxation convention 40

5.3.7. Equities 40

5.3.8. Exchange of information 40

5.3.9. FATCA 41

5.3.10. HNW 41

5.3.11. Liquid assets 42

5.3.12. Mass affluent 42

5.3.13. Mutual funds 42

5.3.14. Onshore 42

5.3.15. Residency 42

5.4. Methodology 43

5.4.1. 2016 Global Wealth Managers Survey 43

5.4.2. 2015 Global Wealth Managers Survey 43

5.4.3. Global Retail Investments Analytics methodology 43

5.4.4. Forecasting methodology 44

5.4.5. Global Wealth Model methodology 44

5.5. Bibliography 45

5.6. Further reading 45

List of Tables

Table 1: Federal income tax rates and income bands for 2017 23

Table 2: US: adult population segmented by affluent category and asset band (000s), 2010−15 29

Table 3: US: adult population segmented by affluent category and asset band (000s), 2016−20 30

Table 4: US: retail wealth segmented by affluent category and asset band (000s), 2010−15 31

Table 5: US: retail wealth segmented by affluent category and asset band (000s), 2016−20 32

List of Figures

Figure 1: More than two thirds of the US population is affluent, which represents the world’s largest wealth opportunity 9

Figure 2: HNW and mass affluent individuals account for almost all onshore US liquid assets 11

Figure 3: The US retail savings and investments market will show moderate growth over the forecast period 13

Figure 4: Equity and mutual fund holdings account for 67.6% of the total onshore market 14

Figure 5: The US market is heavily weighted towards equity and mutual funds 16

Figure 6: Deposits will see steady growth, adding $2.02tn over four years 18

Figure 7: The US stock markets ended 2016 on an all-time high 19

Figure 8: Retail bond holdings will see modest growth after snapping their losing streak in 2015 21

Figure 9: Mutual funds and equities mirror the NYSE Index 23

Figure 10: US mutual funds are heavily weighted in equities 24

Figure 11: Direct property investments are the most popular asset outside traditional liquid allocations 27

Figure 12: US HNW individuals allocate 12.8% of their wealth offshore 28

Figure 13: Global diversification and tax efficiency are the main drivers of offshoring wealth 29

Figure 14: The UK, Canada, and China are now the booking centers of choice for US HNW citizens 32

Figure 15: Aside from FATCA, tax agreements have been signed across the world 33